March 22, 2002


 Search the Internet
E-Mail this column to a friend

Print this page
Recent Columns
Wiping the mess
Time is on the side
     of the Maosists
The threat is real
War or Peace
More bark than bite

Major General (retd) Ashok K Mehta

Money, money everywhere, not a note to spend

If the Indian Air Force's pressing need has been the Advanced Jet Trainer since 1983, and instead it has got the multi-role Sukhoi aircraft, there is a story behind it.

Similarly, the army has been scouting for a weapon-locating radar since 1986. It is only now that the fire-finder has been located. The navy, which is the Cinderella of the services, does about the best in meeting its demands though the Gorshkov is still a flicker on the horizon.

The Indian catalogue of building defence capability is as erratic as it is risky. This is the outcome of the equally erratic defence budget. The more you try to change its antiquated systems, the more they remain the same.

Former army chief General V P Malik catalysed the process of change with his remark, "We will fight with what we have", just before Kargil. Defence reforms following Kargil are yet to take root, but will they change the mindset is the question. And now a new problem has cropped up: the failure to use funds.

The new defence budget (up from Rs 62,000 crore -- $12.718 billion -- to Rs 65,000 crore -- $13.333 billion) does not address the key Kargil concern: creating timely deterrence capability. This is not a mere function of allocation of funds, but of fixing priorities between capabilities.

It is true that after starving the armed forces in the 1990s, Kargil raised defence funding (as distinct from defence spending) from around 2.2 per cent of the GDP to 2.7 per cent. Unfortunately, however, no significant systemic changes took place to provide drive and direction to defence planning and decision-making. Despite good intentions, capability-creation has not taken off. The refrain in the services is: money, money everywhere, not a note to spend.

The endemic defects notwithstanding, the defence budget for the year 2002-2003 does not excite any wows or gasps. Given the ground reality, it is being called a realistic budget, though far below expectation. Here are some statistics: The modest increase of Rs 3,000 crore ($615 million) over the previous year is an increase of only 4.8 per cent, which, in fact, lowers the GDP ratio of defence spending from 2.7 to 2.56 per cent. Weighed against military inflation, the money increase is notional, but compared with actual use it is substantial -- 14.8 per cent.

After displaying some consistency in two previous years, the percentage decline in GDP ratio is some distance from the target of 3 per cent. This variation will not help planning and decision-making. But perhaps the most alarming trend setting in is the inability to use capital funds for the third year in a row. Nearly Rs 3,000 crore meant for modernisation and new equipment has gone unspent. Almost 80 per cent of the money is sought to be spent between January and March.

It is no secret that at the beginning of November last year, the army had used only 15 per cent of its capital budget while overall utilisation of the three services was a mere 25 per cent. The scramble will turn into a stampede of spending before March 31. This is bad. In spite of this, the capital allocation for the new fiscal year is an impressive Rs 21,411 crore ($4.392 billion), up by approximately Rs 4,500 crore ($923 million) over the amount used last year.

As in the past, revenue expenditure, which accounts for 70 per cent of the defence budget and is seldom in the spotlight, has registered non-utilisation in "general stores" amounting to Rs 2,000 crore ($410.26 million). This adversely affects war-readiness and inventory maintenance. Taken together, capital and revenue, the amount not used is Rs 5,000 crore ($1.026 billion).

Apart from these features of the budget the finance minister has instituted a national security levy of 5 per cent. After Kargil, this is the second time a security tax has been levied, which will go to the Consolidated Fund of India, not the defence services.

The proposal to build 18 lakh dwellings for the families of jawans is a sound welfare measure. The money for this will probably be found from the revenue head. But it is not clear how Operation Parakram -- the name given to the country's biggest ever deployment now in place for the third month and estimated to cost Rs 3,000 crore by the end of March -- will be funded.

One other feature of the annual defence budget is the ritual, almost apologetic, promise of every finance minister to allot additional funds over and above the amount announced. They need to note that this is a meaningless declaration as defence capability is the result of a long-term planning process and not something that can be bought off the shelf.

The commitment is also worthless in the light of the huge amounts of money that are surrendered. The honourable minister will do immense service to the nation and the armed forces if he were to enquire why funds continue to lapse and important projects hang fire for decades. No wonder the AJT is now called a Jet Too Far and has cost six air chiefs their reputation.

In the past, finance ministers have kept the services in the dark. In 1992 for example, Dr Manmohan Singh is believed to have given an undertaking to the IMF to bring down defence expenditure from 2.9 to 2.5 per cent of the GDP. That their pre-occupation with managing the fiscal deficit is met by playing with defence allocations is no longer a secret. The failure of the government to go along with the Ninth Plan of the armed forces, the first ever to get Cabinet approval, indicates the gap between plan and practice.

If the present budget represents bad defence finance, it could become impressive diplomacy as capitals all round the world are likely to note that India has cut the rate of growth of defence expenditure even at a time of confrontation with Pakistan.

Due to this slump in the growth rate, it is unlikely that the recommendations of the Eleventh Finance Commission to raise defence spending to 3 per cent of the GDP by 2004 will be met. The defence ministry's suggestion to create a two-year roll-on fund or a consolidated defence fund has also not been taken seriously.

The pressing concern, however, is the non-utilisation of allotted funds that has resulted in dangerous voids in defence capability. In the aftermath of Bofors, Tehelka, CVC, CAG and Coffingate, not one in the equipment acquisition loop is prepared to put his signature on file. The newly created Defence Procurement Agency is seen to be a panacea. It has integrated acquisition, finance and technical services. Most people expect it to produce miracles, forgetting that it is the same tribe of bureaucrats clubbed together instead of being compartmentalised. The credit for the fact that only Rs 3,000 crore and not Rs 8,000 crore ($1.641 billion) is being surrendered is being given to it.

Defence of the realm must override defence of the fiscal deficit.

Major General (retd) Ashok K Mehta

Tell us what you think of this column